Estimated reading time: 5 minutes
From CDC, to DWP, all the way to HMRC – Head of Pensions Research, Tyron Potts maps out an A – Z on everything you may have missed in pensions news this spring.
Collective Defined Contribution (CDC) Schemes
Royal Mail and the Communication Workers’ Union (CWU) have reportedly agreed to close the Royal Mail’s Defined Benefit (DB) pension schemes and replace them with a Collective Defined Contribution (CDC) arrangement. The current UK legislative framework does not allow the formation of CDC Schemes, and it is understood the Department for Work and Pensions (DWP) is working with Royal Mail and the CWU to “understand what, if any, legislation is required to meet their clear needs”.
DC: “Not the right time” for pot-follows-member
Guy Opperman, the Parliamentary Undersecretary of State for Pensions and Financial Inclusion, has said that “now is not the right time” to introduce a pot-follows-member system of automatic transfers for workers with DC pension savings. He noted that “the Government’s priority for private pension savers in 2018 remains the successful roll-out of automatic enrolment”.
DC Schemes: Disclosure of charges
Defined Contribution (DC) schemes are now required to publish annual information about the investment options it offers members, including an illustration of the “compounding effect” of charges. Fines apply for non-compliance of up to £5,000 for trustees and £50,000 for employers.
The information will have to be included in “Chairs’ Statements” issued for scheme years ending on or after 6 April 2018, though exemptions apply – in particular where the only DC benefits a scheme provides are in respect of Additional Voluntary Contributions (AVCs) in a DB scheme.
DWP: Bulk transfers of former contracted-out rights
New regulations came into effect on 6 April 2018 correcting a legislative anomaly, meaning that formerly contracted-out schemes may now bulk-transfer members (without their consent) to schemes which have never been contracted out. Such transfers will however be subject to a number of restrictions, including that the receiving scheme must offer “similar benefits” and protections to those that would have been provided by a contracted-out scheme prior to the abolition of contracting-out in 2016.
High Court – Recovering overpayments
A High Court judge has ruled, in the case of Burgess & Others vs BIC UK, that where benefit changes were not applied strictly in accordance with formalities in scheme rules, a subsequent Deed may yet still be used to formalise earlier decisions. In this case, the company (BIC UK) is trying to unwind pension increases that had been applied under old surplus funding legislation (since revoked). The ruling was in favour of the trustees meaning that (subject to appeal) the benefit increases stand.
Nevertheless the judge ruled that, had the increases been unwind-able, the usual six-year time limit would not apply where the trustees sought recovery of overpayments via adjustments to future pension instalments.
HMRC: Scottish Rates of Income Tax
From the 2018/19 tax-year, residents of Scotland will pay different rates of income tax to the rest of the UK. HM Revenue and Customs (HMRC) has set out how tax relief on pensions savings is expected to work for UK residents north of the border. James Jones-Tinsley explores the issue in more detail in his blog post.
Multi-employer schemes: Deferred Debt Arrangements
Following a consultation in March 2015, the DWP has introduced new legislation from 6 April 2018 in relation to ‘section 75’ debts.
The rules will allow companies participating in multi-employer schemes (particularly industry-wide or non-associated multi-employer schemes (“NAMES”)) to defer the debt triggered when they cease to employ any active members (whilst other employers still do).
Once the Deferred Debt Arrangement (DDA) is in place, the employer will retain responsibility for funding the relevant scheme liabilities (including obligations to make deficit repair contributions), but could in theory defer payment of the debt indefinitely. Before a DDA can be agreed, the scheme trustees would have to be satisfied that the overall employer covenant would not be expected to materially weaken in the following 12 months.
PPF: Bridging Pensions and Compensation Caps
Following a consultation last year, standard Pension Protection Fund (PPF) compensation has been amended so that it reflects scheme benefits where a ‘bridging pension’ was in place.
Typically, bridging pensions were written into scheme rules to cover a gap between an occupational pension scheme’s retirement age and State Pension benefits coming into payment. Previously, PPF compensation would have been based on the higher pension at retirement without reflecting any subsequent reduction – resulting in a windfall for some members.
Meanwhile, The European Court of Justice (ECJ) has issued a preliminary ruling suggesting that where PPF compensation is below 50% of any one member’s accrued scheme pension, this is contrary to a 2008 EU Directive insolvency protection for employees.
The UK’s Court of Appeal will now consider the ECJ’s decision and the case may yet be subject to a further referral to the UK’s Supreme Court.
TPR: Cyber Security for Trustees
The Pensions Regulator (TPR) has issued regulatory guidance for pension scheme trustees who it says “need to take steps to protect their members and assets against … cyber risk”.
TPR said that schemes should ensure they are “compliant with data protection legislation”, including being ready for the EU’s General Data Protection Regulation (GDPR) coming into effect on 25 May 2018.
TPR: Management of Service Providers
TPR has published a statement setting out good practice for pension schemes trustees on the “management of service providers”. TPR reminds trustees that they remain accountable for the running of their scheme, even where they outsource functions such as administration to third parties.
TPR expects trustees to put sufficient controls in place to ensure schemes are well run and to be able to demonstrate an ability to effectively manage commercial relationships.